Arizona First Employee Checklist in 2026: Payroll Accounts to Open Before Hiring

August 19, 2026

Arizona First Employee Checklist in 2026. You found someone great. They can start in two weeks. You want to say yes. But before you shake hands on it, you need to open the right payroll accounts. Arizona has specific requirements. Missing one means penalties, back-filings, or a payroll that gets shut down before the first paycheck clears. This checklist covers every account you need and the order to open them so nothing gets skipped.

Why This Checklist Exists

Hiring your first employee is a milestone. It is also a compliance trigger. The moment you have even one employee, federal and Arizona state law treat you differently. You owe payroll taxes to the IRS. You owe unemployment insurance to Arizona. You may owe workers’ compensation premiums to the Industrial Commission of Arizona. Each of these has its own agency, its own account, and its own filing schedule. Opening them in the right order prevents rework. Trying to open them after payday is harder, more expensive, and sometimes impossible without back-paying taxes and interest. The accounts on this list are not optional. They are the baseline for operating legally as an employer in Arizona.

Step 1: Apply for an EIN From the IRS First

Your Employer Identification Number is the first thing you need. An EIN is like a Social Security number for your business. You get it from the IRS for free. It takes about five minutes to apply online. The IRS website processes the application immediately and gives you your number right away. You need an EIN before you can open any other payroll account. The Arizona Department of Economic Security, the Arizona Department of Revenue, and the Industrial Commission of Arizona all ask for your EIN on their forms. If you do not have one yet, everything else waits. Apply at the IRS Employer ID Number application page. There is no fee and no reason to wait. If your LLC already has an EIN from when you formed it, you use that same number for payroll. Do not apply for a new one. Just keep it handy for the next steps. Once you have your EIN, write it down and keep it with your business formation documents. Every Arizona employer account you open from this point forward will ask for it. If you lose it, you can look it up on the IRS website using your business name and entity type. But it is faster to keep a copy in your compliance folder from day one.

Step 2: Register as an Employer With the Arizona Department of Economic Security

Once you have your EIN, register as an employer with the Arizona Department of Economic Security. This creates your Arizona unemployment insurance account. The DES uses this account to track your employees and determine your unemployment tax rate. You register through the DES MyUI employer portal. The registration is free. It asks for your EIN, your business start date, your expected payroll amounts, and information about your employees. After you register, DES will assign you a contribution rate for unemployment insurance. New employers in Arizona typically receive a default rate that starts at about 2 percent of taxable wages, though the exact rate depends on your industry and the state schedule in effect for the year. You must register before the end of the quarter in which you hire your first employee. If you miss that window, DES may assess penalties and back-file the account for you at a higher rate. Register early. It costs nothing and saves headaches later. Most new employers find the DES portal straightforward, but if you get stuck, the DES employer helpline can walk you through the registration process.

Step 3: Register for Arizona Withholding Tax With the Department of Revenue

If you will withhold Arizona state income tax from your employees’ paychecks, you need to register for withholding tax with the Arizona Department of Revenue. Not every employee will have Arizona income tax withheld — it depends on their residency and your agreement with them — but if you plan to withhold, you must have an account set up before the first paycheck. Register through the Arizona Department of Revenue taxpayer portal. The department’s withholding tax guide provides step-by-step instructions on calculating, withholding, and remitting Arizona income tax from employee wages. The registration is free and can be done online. Once registered, you will receive a withholding tax account number and instructions for filing withholding returns. Most Arizona employers file and pay withholding tax monthly, though some with smaller payrolls file quarterly. Your filing frequency depends on the size of your payroll.

Step 4: Report Your New Hire to the Arizona New Hire Reporting Center

Arizona requires every employer to report newly hired employees to the Arizona New Hire Reporting Center within twenty days of their start date. This is not optional. The information goes into a national database that helps enforce child support orders and detect unemployment insurance fraud. The report requires the employee’s name, address, Social Security number, and start date. You can file it online through the DES portal, by fax, or by mail. The online filing through the DES MyUI portal is the fastest and most reliable option. Set a reminder to file this within twenty days of your employee’s start date. It is easy to forget when you are focused on onboarding.

Step 5: Set Up Workers’ Compensation Insurance Through the Industrial Commission of Arizona

Arizona does not require every employer to carry workers’ compensation insurance, but most Arizona LLCs with employees need it. If your business has one or more employees in Arizona, you are generally required to carry workers’ comp coverage unless your industry is specifically exempt under state law. You obtain workers’ comp coverage through a private insurance carrier. The Industrial Commission of Arizona oversees the workers’ comp system in the state. The ICA publishes an employer compliance guide that covers coverage requirements, injury reporting, and dispute resolution for Arizona workplace claims. Your insurer will report your coverage to the Industrial Commission. Do not assume your general liability insurance covers workplace injuries. It does not. Workers’ comp is a separate policy. If you fail to maintain required workers’ comp coverage and an employee gets injured, you could face fines, back-premium assessments, and personal liability for medical costs. Get the policy before the first day of work.

Step 6: Set Up Your Payroll System

With the accounts above in place, you need a way to run payroll. You can do this manually using IRS Form 941 and the Arizona withholding forms, but most small LLCs use payroll software. Good payroll software handles the calculations, files the quarterly and annual forms, and prints or deposits paychecks. Whatever system you use, make sure it knows your Arizona unemployment insurance rate and your state withholding rules. Most major payroll platforms include Arizona-specific settings. Running one or two paycycles in test mode before the first real payday helps you catch any setup errors while they are still free to fix.

Step 7: Understand Your Federal Payroll Tax Obligations

Arizona accounts are only one side of the equation. As an employer, you also owe federal payroll taxes. These include federal income tax withholding, Social Security tax, and Medicare tax. The IRS calls these employment taxes and they are among the most strictly enforced obligations in the tax code. Social Security and Medicare taxes are split between you and your employee. You withhold half from each paycheck and pay the other half yourself as the employer. This adds about 7.65 percent of each employee’s wages to your payroll costs on top of what you withhold from their pay. For an employee earning $40,000 a year, that means roughly $3,060 in employer-side Social Security and Medicare taxes in addition to what the employee owes. You report and pay these taxes using IRS Form 941 every quarter. The filing deadlines are April 30, July 31, October 31, and January 31. If you miss a quarterly filing, the IRS charges failure-to-file penalties that can reach 25 percent of the unpaid tax. If you accumulate payroll tax liabilities and fail to remit them, the IRS can hold you personally responsible. This is not a risk that goes away if you hand payroll off to a bookkeeper or software. Whoever runs your payroll must understand that payroll tax deposits are different from ordinary business expenses and have their own deposit schedule. You also need to file IRS Form 940 annually for federal unemployment tax. The FUTA tax rate is 6 percent on the first $7,000 of each employee’s wages, though you can claim a credit of up to 5.4 percent based on your state unemployment insurance payments, bringing the effective federal rate down to as low as 0.6 percent. Form 940 is due by January 31 each year for the prior tax year. The IRS Form 941 instructions provide detailed guidance on calculating and depositing federal payroll taxes throughout the year.

Common Mistakes New Arizona Employers Make

Opening the wrong accounts first causes delays. Some business owners try to register for Arizona withholding before they have an EIN. That does not work. Get your EIN, then register with DES, then handle withholding. The IRS EIN is the foundation everything else sits on. Keep the written EIN confirmation from the IRS. You will need it for every state registration form.

Assuming your LLC is a corporation and does not need these accounts is another common mistake. If you have employees, these requirements apply to LLCs, corporations, partnerships, and sole proprietors equally. The legal structure does not change the payroll obligations. Every employer in Arizona faces the same registration requirements regardless of how the business is organized.

A third mistake is failing to keep payroll records for the required period. Arizona and federal law require you to keep employee wage records, withholding statements, and payroll tax filings for at least four years after the tax becomes due or is paid, whichever is later. Missing records make annual filings harder and IRS audits more expensive. A simple folder or digital archive for payroll documents saves significant cost down the road.

Waiting until after the first payday to set up accounts is the most expensive mistake. Back-filings for unemployment insurance and withholding tax include interest and penalties that add up quickly. It is always cheaper to set up accounts before you need them. If you are unsure whether you have all the accounts, use the Arizona Department of Economic Security employer portal to verify your registration status at any time.